[Analytics] Without 5G support, new iPhones may struggle in China’s cutthroat smartphone market

Global 5G smartphone sales are projected to surpass those of 4G handsets from 2023, when 51.4 per cent of the market goes 5G. Li Tao specially for the South China Morning Post.

Self-proclaimed iPhone loyalist Sam Zhang must soon decide on whether to continue using Apple’s flagship product or switch to a Chinese-brand smartphone. The X factor: 5G.

“I typically use an iPhone model for two to three years,” said 25-year-old Zhang, who has an iPhone 7 Plus and works for a foreign company in the southern coastal city of Shenzhen. “So if I buy the new iPhone 11, I won’t be able to use a 5G data plan for the next two to three years, which would be pretty dumb if everyone else is using the latest mobile service.”

Other iPhone users in the world’s largest smartphone market could also be prompted to make a similar decision, dampening the outlook on the mainland for the latest batch of iPhone models unveiled by Apple on Tuesday in the United States.

Apple launched three new models – the iPhone 11, iPhone 11 Pro and iPhone 11 Pro Max – all without 5G network support. Prices for the iPhone 11 start at US$699, which is about US$50 less than last year’s iPhone XR. But the top-of-the-line, 512-gigabyte iPhone 11 Pro Max costs US$1,449, which remains at the high end of the market.

“On paper, a 4G iPhone won’t look up to snuff in China, considering how aggressively we’ll see 5G being pushed there in the upcoming quarters,” said Bryan Ma, vice-president of client devices research at IDC. “That will make iPhone users think twice, or perhaps delay their replacements until next year in the hopes that Apple has a 5G model available by then.”

Such a reaction would not augur well for China’s overall smartphone market, which has been on the decline because of longer replacement cycles and growing channel inventories.

While the launch of new 5G Android smartphones and the roll-out of ultra-fast, next-generation mobile services suggest growth opportunities, concerns remain about domestic consumption amid an escalating US-China trade dispute that saw the mainland’s economic growth reach a record low of 6.2 per cent in the second quarter.

Smartphone shipments on the mainland fell 6 per cent to 97.9 million units in the second quarter, down from 104.2 million units a year earlier, according to data released last month by research firm IDC.
Apple plans to hold off until at least 2020 before offering an iPhone that can connect to 5G networks, according to a Bloomberg report in December, citing people familiar with the US technology giant’s plans.

“Since a number of players have started launching their flagship 5G smartphones, we could expect more affordable phones with 5G capability to become available, too,” said Kiranjeet Kaur, senior research manager with IDC Asia-Pacific’s client devices group.

“The lack of 5G support on phones released in countries where 5G has already launched, or is expected to launch soon, will make 4G-only phones less attractive.”

Huawei Technologies, China’s largest smartphone vendor, started selling its Mate 20 X 5G smartphone in the country on August 16, priced at 6,199 yuan (US$870). Pre-orders of the handset exceeded 1 million, according to the Shenzhen-based company.

The Axon 10 Pro 5G smartphone from ZTE Corp and Samsung Electronics’ Galaxy S10 have also been released on the mainland.

Vivo is expected to launch its own 5G handset in Shanghai next week. Beijing-based Xiaomi Corp is also expected to soon release its 5G smartphone in China.

“The Chinese telecommunications network operators are initially offering 5G mobile services to a small number of their subscribers, who can buy 5G handsets on their own or through these service providers,” said Edison Lee, a Jefferies equity analyst who covers Hong Kong-listed China Mobile, China Unicom and China Telecom. “These telecoms operators are not subsidising the handsets at all.”

“Many Chinese consumers are unlikely to fork out 6,000 yuan or more for a 4G smartphone, knowing that many more 5G handset models will come to market in the first half of next year,” Lee said.

That situation may also emerge in other markets already with commercial 5G mobile services, which would mean more challenges ahead for Apple’s main revenue contributor.

Initial commercial 5G mobile services have been rolled out in South Korea, the US, Australia, the UK, Switzerland, Spain and Monaco. Yet the scale of China’s market is likely to dwarf the combined size of those economies.

Globally, iPhone sales fell 12 per cent to US$25.99 billion in the quarter ended June 30, after dropping 17 per cent in the previous quarter. In July, Apple reported total sales of US$9.61 billion in the same period from Greater China – covering mainland China, Hong Kong and Taiwan – that was down 4 per cent from a year earlier.

To be sure, the iPhone remains popular with consumers in China and other markets because of its high resale value in the second-hand market, according to Jia Mo, a Shanghai-based analyst at research firm Canalys.

“Since these devices operate within Apple’s closed ecosystem, the new iPhones might not see its prices affected in the second-hand market even if these have no 5G network support,” Jia said. “But for those who purchase an iPhone with a monthly plan [from an operator] and use the device for two to three years, the lack of 5G support would be a concern for them.”

Canalys has projected that global demand for 5G smartphones will unlikely surpass that of 4G handsets any time soon. It expects 5G smartphone sales to overtake those of 4G devices from 2023, when up to 800 million 5G handsets are forecast to be shipped and make up 51.4 per cent of the entire smartphone market.